Monday, April 28, 2008

9 out of 10 Consumers have Changed their Buying Habits


I've read some interesting stats in the last couple of weeks. Such as even though most people did not feel an extra pinch in the wallet, they still felt concerned about the economy, mostly because of the news media and our presidential campaign.

However, I see that it is now hard to ignore that living costs more. It's not just those that can't afford their mortgage, or who can't get a mortgage or who can't sell their house, it's now hitting nearly everyone.

So, it is now more important than ever, to stand out, to build your brand, to be at the top of the heap, to have top of mind awareness, and invite people to do business with you.

You may be tempted to lure them in with low prices, but you better try and convince them to stay with not just good customer service, but exceptional customer service. Think about that word, exceptional.

You must stand out from your competitors, and be the exception to the "good". Take a look at this and you'll see why:

Pump Prices Squeeze Consumers, Brands

April 27, 2008 By Kenneth Hein and Eric Newman

Soaring gas prices that keep returning like a canker sore are likely to change many consumers buying habits for the long-term, according to experts. This means, branding may be more important than ever across a variety of categories.

As consumers become more selective, brands and businesses will need to stand out, said David Portalatin, director of industry analysis at the NPD Group, Port Washington, N.Y. "There are opportunities out there for brands that differentiate."

In fact, 91% of consumers claim they have changed their shopping behavior due to various rising prices in the U.S. economy, per Vertis Communications, Baltimore.

One of the categories getting hit the hardest is restaurants. Last year, customer traffic was up only 0.7%, per NPD. More than half of financially challenged consumers surveyed said they are stocking up, preparing more meals at home and using leftovers.

"In spite of everything they've done, even McDonald's couldn't come up with a positive number in March," said Ron Paul, president of Technomic, Chicago. "It's going to be worse moving forward because there is more driving during the summer. It will pull even more dollars from customers wallets and become another negative for the restaurants."

Some casual dining chains, like Applebee's, have come out with reduced price meals. However, "We saw little lift as a result of those incentives," said NPD restaurant analyst Bonnie Riggs. "Operators will have to have a strong value proposition, which doesn't always mean the cheapest price. They have to establish a competitive point of difference because everybody's doing the same thing."

This is especially important since just being convenient isn't of much value today. For the first time since 1980, consumers are driving less. Last year, the amount of miles driven declined 0.4% as $4 and even $5 a gallon gas prices have consumers opting to keep it in "park." The previous two years had been flat. Prior to that, the amount of miles had grown 3-5% each year.

This will likely affect not only convenience stores like 7-Eleven, but also many on-the-go products like 20-oz. beverages. "If people are paying more at the pump, they will be less inclined to buy soft drinks in coolers," said John Sicher, editor of Beverage Digest, Bedford Hills, N.Y.

Coca-Cola and PepsiCo also will feel the pinch as transportation and raw materials costs rise. "It's squeezing everybody's margins," said Gary Hemphill, managing director at Beverage Marketing, New York. "Beverages are price sensitive, there is only so much you can pass onto the consumer."

Food and personal care products are less likely to be affected. However, higher-end beauty products, technology, clothing, home decorations and other "nonessential items" likely will take a hit, said Wendy Liebman, CEO of WSL Strategic Retail, New York. "I must eat. I must wash and I must take Tylenol. But, when you start to move down the list, you see clothing is on the edge and starts to slip below [along with other nonessential categories]."

For example, only 18% of Americans anticipate spending more on entertainment products and devices this year, per NPD. Thirty-seven percent will spend less. Therefore, devices like the iPhone need to possess a must-have quality to lure away dollars.

Department stores and upper-end teen stores will be "hit" at back-to-school time, said NPD senior analyst Marshal Cohen. Price promotions "for similar products will be the parents' focus."

Small cars are one category that is benefiting. "It is actually happening, people are buying small cars," said John Bulcroft, president of auto consultancy Advisory Group, Cresskill, N.J.

Small car sales have been up about 6% each month this year. Automakers have watched gas prices and delivered sharp, well-handling small cars that feed the need for fuel economy.

Ford recently announced that because sales of its small Focus sedan have exceeded expectations, it would increase production of the model by 28%. Focus, which gets 28 miles per gallon, saw sales shoot up 23% through March, per the company.

The auto aftermarket category, like oil additives and replacement parts, also is expected to benefit.

"People will want to take care of the cars they have," said Portalatin.

"If these gas prices persist for another year, I see a major shift in purchasing habits," Bulcroft said. "We are on the cusp right now." —with Steve Miller khein@brandweek.com

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